The editor of one of three Dow Theory newsletters I track says "yes."  You might wonder why there is any doubt about what the Dow Theory is saying. But disagreements among Dow Theorists are the inevitable result of the theory's genealogy.
 

The Dow Theory was never codified into a set of objective rules. It was introduced over a 30-year period at the beginning of the past century in editorials in The Wall Street Journal. Those editorials were written by William Peter Hamilton, then the editor, on the basis of conversations he had with Charles Dow, the founder of Dow Jones & Co., the newspaper's publisher.
 

Hamilton's editorials leave lots of room for followers to argue over the more esoteric points of the theory. Consider what is required for a Dow Theory sell signal to be generated:

These steps may strike you, at first blush, as being specific enough. In fact, they leave enormous room for disagreement.

Take the first step. What constitutes a "significant" correction? Not just any correction will do, of course, since if we focus on declines that are too small or that last for too short a period of time, we run the risk of being whipsawed into and out of the market with frequent buy and sell signals. On the other hand, if we require a decline to be too severe or to last too long, then an eventual sell signal becomes way too late to protect investors from serious losses.

One rule of thumb that some Dow theorists in the past have used is that the correction needs to last at least three weeks. But Jack Schannep, editor of TheDowTheory.com, the Dow Theory service that turned bearish as of Tuesday's close, believes that, because of the Internet and similar technological advances, time has become compressed in the 21st century. As a result, he argues that Dow Theorists should be willing to shorten this required length of time.

This is exactly what Schannep has done. He believes that Step 1 of the three-part sell sequence was satisfied by the stock market decline that lasted 11 trading sessions, from July 19 through Aug. 3.

A similar debate exists among Dow theorists about how much time the market should be given before Step 2 is triggered. Schannep, for his part, believes that the three-day rally that began on Aug. 3 is sufficient. And, assuming that Step 2 has been satisfied, there is no doubt about Step 3, since both Dow averages on Tuesday closed below their Aug. 3 lows.

Notice carefully, however, how dependent this sell signal is on allowing the correction in Step 1 to be less than three weeks. If we were to refuse to relax that widely-used requirement, then we would conclude that the market had yet to get to the end of Step 1. And since Hamilton argued that a Dow Theory signal would remain intact until overturned, and the most recent signal was a buy signal, this alternate interpretation would lead to the conclusion that we are still within a bull market.

This in essence is the position being taken by Richard Moroney, editor of Dow Theory Forecasts, another of the Dow Theory newsletters I track. On Friday, for example, Moroney wrote: "Based on the Dow Theory, bull-market corrections tend to last three weeks to three months. So, further volatility would not be surprising in the near term, and subscribers should maintain a constructive and opportunistic stance toward equities. The primary trend remains in the bullish camp under the Dow Theory, and quality stocks are available at reasonable valuations."

The third Dow Theory newsletter I track is Dow Theory Letters, edited by Richard Russell. He is treating the current pullback as a correction within a long-term bull market, though he is less than totally clear about the exact Dow Theory criteria on which he bases that forecast.

Which newsletter has the best record? The Hulbert Financial Digest has tracked Schannep's advice just since the beginning of 2002, so it is only over the last five and one-half years that I can compare the performances of these three newsletters' interpretation of the Dow Theory. But over this period, Moroney comes out on top, with Schannep in second place and Russell in third.

To the extent the Hulbert Financial Digest's data enable us to say, therefore, Moroney's bullish interpretation carries the day.

One fly in the ointment, however, is that the Dow Theory newsletter with the worst performance over the past five and one-half years is also bullish.